World Inflation: up again in May 2011

In May 2011, global inflation rose again. Developed and Emerging countries are impacted.

In May 2011, the world inflation was up, to 4.7% YoY from 4.5%. In the main emerging countries, aggregate inflation rose to 6.6% and in the OECD area to 3.1% YoY.

In the OECD, the core inflation (excluding food and energy) is stable in May, at 1.6% YoY. The rise in the USA has been compensated by a slight moderation in the euro area and in others OECD areas.

See the tables hereunder for more details.

Economic Impacts

The inflation has increased sharply over the last few months, pushed up by commodity prices (mainly oil and grain). The Emerging world is more impacted, as the share of commodity related products in household’s consumption is much higher than for the OCDE countries. In a context of close-to-potential growth and high inflation, central banks in this part of the world are very likely to tighten further their monetary policy.

In developed countries too, headline inflation and core inflation have moved upward since mid-2010. However, for core inflation, the level remains low compared to the historical average and the upward trend is very gradual.

In this region, almost all central banks have begun to raise their interest rate (including the ECB), focusing in headline inflation. The path is very prudent (small hikes followed by long pause). However, 3 of the major central banks (Fed, BoE and BNS) continue to consider this inflation has temporary and do not intend to let go their very accommodative stance. Core inflation is more important for those banks. But, since the beginning of the spring, the rise in core inflation (US 1.5% in May from 0.6% last autumn) gives more argument to the hawks.

In Japan, the BoJ is in a very peculiar situation (new recession and entrenched deflation).

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